S&P downgrades UK banks

Barclays, Lloyds and RBS all saw their ratings cut by Standard & Poors this week on fears that the government would not bail them out if they met with trouble.
S&P fears new EU legislation would prevent the UK government from coming to their aid should they hit difficulties in the future.
A statement from the ratings agency said that action had been taken because “extraordinary government support will likely become less predictable in the near term…” S&P added that it continues to see “unresolved questions” about how the EU’s Resolution and Recovery Directive will operate in practice.

Lloyds was cut from A- to BBB, RBS from BBB+ to BBB- and Barclays from A- to BBB.
HSBC saw its rating go from A- to BBB while Standard Chartered went from A to A-. Credit Suisse also suffered, its rating going from A- to BBB+.
The changes are to the banks long-term counterpart credit rating.
S&P issued an additional report, UK Banking: A Stronger Economy Signal a more Confident 2015, saying banks can expect modest growth this year though that comes along with increasing competition from “challenger banks”.

The challenge is not, however, expected to be stiff enough to “distort competitive dynamics”, according to the report, which also said that total credit growth will remain low by historical standards. Consumer credit will continue to recover, it said.
S&P said: “U.K. bank earnings should improve modestly in 2015 on the back of a seemingly robust economy, and a declining negative impact from past misdemeanors and poor lending practices.”
It added: “We see some scope for improvements in banks’ stand-alone creditworthiness over the coming twelve months, mainly because we believe that some institutions may outperform our expectations, or have dealt with legacy issues and, by choice, regulatory stricture, or both, they are becoming fundamentally more creditworthy. For the most part, though, our stand-alone assessments already incorporate our central expectation of improving earnings, strengthening capitalization, and sound funding and liquidity profiles.”
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